- It has been a sharply higher day in Chicago soybean/meal trade with the grains coming under some selling pressure due to spread unwinding. One of the most popular spreads in the past 4-5 weeks has been long of corn/wheat against short soybeans. The soy complex was used as a short leg as $50 billion of US tariffs could be placed by the US against China after May 23. The grain/soy spread is being unwound as the US/China have been able to come to a framework deal that includes 35-45% more ag trade into China and billions of US energy sales. Although specifics of which commodities will be sought is lacking, the parties (US/China) have scored enough progress for the US to withdraw the tariff threat for now. The USTR would not entirely lift the threat of tariffs as they want to make sure that China preforms on its promises, and that both parties can work out the details of the pact. We would note that it would be foolish to announce goods or services that would be purchased under the framework deal, since prices would be run up on the buyer. What commercial traders are wondering is whether China will start to make those purchases sooner than later since the ‘green light” has been given? China has just 1.020 million mt of soybean purchases made to date.
- The US products that China will likely take larger tonnages of are; soybeans, sorghum, ethanol, cotton, meat and meat products, and nuts. From a pure percentage basis, its likely to be US beef as its starting from such a low import profile (excluding Kong Hong). US President Trump tweeted that; “Under the new potential trade deal, China will purchase from our Great American farmers practically as much as they can produce”. This new demand is a lift to Chicago values and will limit downside price risk (for now).
- US exporters report that they are starting to see interest for US ag products from Chinese buyers following weeks of absence. The big question is if there is any pent-up demand that will come to the forefront. July soybeans on April 3 were trading just under $10.50 (before US tariffs threats became known) and Chicago traders peg this is the initial upside price target.
- Brazilian truckers are amassing a huge protest to their diesel prices rise of 25-30% on currency/crude prices compared to last year. Some truckers are blockading roadways, while most are just saying they will stay at home and not lose money. Like prior years, it is a question of how long the strike endures and will it slow the movement of corn/soybeans/soy products to their ports.
- Argentine farmers endured a serious quality downgrade to 2.5-3.0 million mt of soybeans due to excessive April rains. The quality degrade occurs on top of a drought reduced crop that is estimated to be no larger than 35-36 million mt. The availability of Argentine soy product exports will be constrained by the crop quality shortfall.
- US export inspections for the week ending May 17 were; 60.2 Mil Bu of corn, 32.8 Mil Bu of soybeans, and 12.5 Mil Bu of wheat. It’s been surprising that the US soybean export pace has been this strong in the absences of China.
- The midday GFS forecast N American weather pattern remains complex and the GFS forecast is likely too wet for crop areas west of the Miss River in the 8-15 day period. A strong jet stream and a ridge of high pressure across the PNW/SW Canadian Prairies will keep the western half of the US in a more arid upper air flow with above normal temperatures. Heavy rains are slated to drop over the Gulf States and northward into the Delta. The western US and the Great Plains should hold in a drought like pattern with warming temperatures into the middle of June, a concern.
- The wheat market has fallen on selling from the weekend Plains rain and wheat/soy spread unwinding. However, the forecast for the Black Sea is arid and new crop Russian bids are holding firm. Chinese demand for US soy/sorghum is returning. The market has a firm tone and a weather shock to the US corn/soybean balance sheet is unacceptable. Our view is that we will see is new rally highs.